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Responding to complaints that matrimonial property legislation with its emphasis on division only of "family assets" did not go far enough, the legislature in Ontario adopted a new Family Law Act in 1985. This Act introduced the concepts of "net family property." and "equalization", a type of deferred community of property. During the marriage each spouse owns all of his or her own property and is free to deal with it free of any claims by the other. The one exception is a matrimonial home which can only be encumbered or sold with the consent of a non-titled spouse. Unlike the spousal and child support sections, the property legislation deals only with married spouses. Whether or not recent successful charter challenges in the areas of support for same sex couples will extend property rights to common law and same sex partners remains to be seen.
When a triggering event, usually separation or death, occurs each spouse or the estate of the deceased in the case of death calculates his or her respective "net family property". To do so, each spouse values all assets as of the "valuation date" which is arbitrarily set as the date of separation or death. Some assets added during the marriage, such as gifts from third parties, inheritances, and personal injury insurance settlements may not be included in the calculation depending upon the exact circumstances. Each spouse then subtracts all indebtedness at the valuation date and the value of all assets owned as of the date of the marriage. (Keep those old bank books, investment certificates and receipts – you may need them some day). Each spouse having calculated his or her net family property, the difference is then "equalized" so that each spouse receives one half of the increase in value of the assets over the term of the marriage.
Complicating what is already a difficult exercise is the means by which the legislature and the courts have chosen to deal with a number of the most common of assets. Without attempting in any way to deal with all of the assets subject to division, I will set out below some of the most difficult problems:
The matrimonial home is defined in the Family Law Act as
"Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence…."
Under the law which has developed in the courts it is possible to have several matrimonial homes but only if they qualify under the definition. That family cottage may be a second matrimonial home but only if it was "ordinarily occupied" during the marriage.
In a unique provision restricted only to the matrimonial home, the legislation provides that a spouse receives no credit or deduction for bringing this asset into the marriage. The result is that a person who enters the marriage as a homeowner will not be able to deduct its value upon separation, whereas the spouse who brings in cash and buys the home the day after the marriage will receive a full credit. Adding further confusion, the legislation goes on to provide that if the original home is sold and a new one is purchased, the credit for the original home brought into the marriage is revived. Lesson: If you brought a home into the marriage and the marriage is rocky – sell the home quickly and buy another one!
The confusing and contradictory provisions on the matrimonial home pale in comparison to the issue of pension division. First, a couple of definitions to help you understand what follows:
A "defined contribution" plan is one under which the employer and employee each contribute a fixed amount annually into the plan. The funds are then invested by the trustee of the plan. Upon retirement, the amount standing to the credit of the employee in the plan is calculated and may then be invested in an RRSP, annuity or other permitted type of investment. Valuation of a defined contribution plan is simple. Since the value at the date of the marriage and separation are both known, the increase in the value can be obtained simply by subtraction. ( Subject to various tax considerations which are beyond the scope of this paper).
By far the greater number of employees with employer pensions are covered by "defined benefit plans". Under these types of pension plan, the employer and often the employee as well each contribute an agreed amount to the plan. The benefits, however, do not relate to the contributions but to a predetermined formula. A typical plan might provide for a payment of 1 ½ % per year of membership multiplied by the average of the best five years of employment.
Unlike the defined contribution plans, the valuation of a defined benefit plan is an exercise in higher mathematics. Clients who are separating where one partner has a defined benefit plan require the services of a skilled person, usually an actuary, to provide a value for the pension. The valuator takes into account permitted retirement age under the plan, life expectancy, assumed future interest rates, assumed future tax rates, etc. to determine the present value of the future pension entitlement. The numbers can be huge. It is not unusual to see the value of a pension for a teacher or civil servant approaching retirement to be in the range of $600,000.00. High income individuals such as airline pilots often have pensions actuarially valued at more than $1,000,000.00. Since the date of intended retirement can dramatically alter the present value of the plan, court battles are regularly waged, based upon nothing more that what plans a spouse may have expressed during the marriage as to when he or she might choose to retire. Needless to say, the very large numbers involved often cause severe cases of selective recollection. Tip: If your marriage is rocky, don’t spend a lot of time discussing how you plan to retire early and enjoy life as soon as you are able to do so.
Despite countless requests from courts and lawyers, the legislature in Ontario has refused consistently to provide legislation allowing a division of pension credits at source which would end the conflict. Since a lump sum payment by the owner of the pension is rarely possible, lawyers and judges are left to struggle with dividing these plans by using forms of trust and "as and when paid" types of divisions.
Gifts and Inheritances
In many cases inheritances and gifts from third parties acquired during the marriage can be exempt from inclusion in net family property. This exclusion extends to assets purchased with the exempt property as long as it is possible to "trace" the flow of funds. Mixing of the gift or inheritance with other assets will cause a loss of the exemption, thereby requiring inclusion in net family property. Once again, the matrimonial home is excluded from the general rule. Lesson: If you inherit money and the marriage is shaky, make sure you don’t mix up the inheritance with other assets or use it to pay debts.
All images and text are copyright Jonathan Graham, 2005 to 2017.
The information on this site does not constitute legal advice. Every situation is different, so you must contact us for a free legal consultation to ensure that you are receiving comprehensive legal advice.